Economy

“The president’s budget extends the life of the Medicare Trust Fund by at least 25 years,” the report said citing the plan.The White House’s proposal would raise the net investment income tax, created by the Affordable Care Act, from 3.8% to 5% for all Americans earning more than $400,000 per year, according to the report.The White House did not immediately respond to Reuters’ request for comment. More

Facing huge economic uncertainty, the Fed is keeping its options open. Jerome H. Powell, its chair, will most likely continue that approach on Tuesday.Mark Carney, the former Bank of England governor, was once labeled the United Kingdom’s “unreliable boyfriend” because his institution had left markets confused about its intentions. Jerome H. Powell’s Federal Reserve circa 2023 could be accused of a related rap: fear of commitment.Mr. Powell’s Fed is in the process of raising interest rates to slow the economy and bring rapid inflation under control, and investors and households alike are trying to guess what the central bank will do in the months ahead, during a confusing economic moment. Growth, which was moderating, has recently shown signs of strength.Mr. Powell and his colleagues have been fuzzy about how they will respond. They have shown little appetite for speeding up rate increases again but have not fully ruled out the possibility of doing so. They have avoided laying out clear criteria for when the Fed will know it has raised interest rates to a sufficiently high level. And while they say rates will need to stay elevated for some time, they have been ambiguous about what factors will tell them how long is long enough.As with anyone who’s reluctant to define the relationship, there is a method to the Fed’s wily ways. At a vastly uncertain moment in the American economy, central bankers want to keep their options open.Strong consumer spending and inflation data have surprised economists.Hiroko Masuike/The New York TimesFed officials got burned in 2021. They communicated firm plans to leave interest rates low to bolster the economy for a long time, only to have the world change with the onset of rapid and wholly unexpected inflation. Policymakers couldn’t rapidly reverse course without causing upheaval — breakups take time, in monetary policy as in life. Thanks to the delay, the Fed spent 2022 racing to catch up with its new reality.This year, policymakers are retaining room to maneuver. That has become especially important in recent weeks, as strong consumer spending and inflation data have surprised economists and created a big, unanswered question: Is the pickup a blip being caused by unusually mild winter weather that has encouraged activities like shopping and construction, or is the economy reaccelerating in a way that will force the Fed to react?Mr. Powell will have a chance to explain how the central bank is thinking about the latest data, and how it might respond, when he testifies on Tuesday before the Senate Banking Committee and on Wednesday before the House Financial Services Committee. But while he will most likely face questions on the speed and scope of the Fed’s future policy changes, economists think he is unlikely to clearly commit to any one path.“The Fed is very much in data-dependent mode,” said Subadra Rajappa, the head of U.S. rates strategy at Société Générale. “We really don’t have a lot of clarity on the inflation dynamics.”Data dependence is a common central bank practice at fraught economic moments: Officials move carefully on a meeting-by-meeting basis to avoid making a mistake, like raising rates by more than is necessary and precipitating a painful recession. It’s the approach the Bank of England was embracing in 2014 when a member of Parliament likened it to a fickle date, “one day hot, one day cold.”Inflation F.A.Q.Card 1 of 5What is inflation? More

Veteran investment strategist David Roche told CNBC’s “Squawk Box Europe” on Tuesday that “things have changed” permanently with regards to China’s role in the global economy.
At its National People’s Congress on Sunday, the Chinese government announced a target of “around 5%” growth in gross domestic product in 2023 — the country’s lowest for more than three decades.

A shopping mall in Qingzhou, Shandong province, broadcasts the opening ceremony of China’s National People’s Congress on Sunday, March 5, 2023.
Future Publishing | Future Publishing | Getty Images

China’s economy will be forced to recalibrate because of a “fractured” global order, and the new drivers of growth will “disappoint” global markets, according to David Roche, president of Independent Strategy.
At its National People’s Congress on Sunday, the Chinese government announced a target of “around 5%” growth in gross domestic product in 2023 — the country’s lowest for more than three decades and below the 5.5% expected by economists. The administration also proposed a modest increase in fiscal support to the economy, expanding the budget deficit target from 2.8% in 2022 to 3% for this year.

President Xi Jinping and other officials took aim at the West for constraining China’s growth prospects, as relations between Beijing and Washington continue to deteriorate. New Chinese Foreign Minister Qin Gang said Sino-U.S. relations had left a “rational path” and warned of conflict, if the U.S. doesn’t “hit the brake.”
Veteran investment strategist Roche told CNBC’s “Squawk Box Europe” on Tuesday that “things have changed” permanently with regards to China’s role in the global economy, as Beijing will be forced to look inward to achieve its growth ambitions.
“China now knows that if it’s going to achieve its growth, it has to achieve it domestically, which means reform which is not yet undertaken, and it means getting the consumer to spend pots of excess savings, which it is very hesitant to do,” he said.

Roche also noted that the “hegemony of the U.S. is now fractured” in the global economic order, with Russia and China detaching from Western democracies. He highlighted that a third fragment has formed in the “big south,” including countries like Brazil and India, which he signaled are not overtly siding with authoritarian powers such as Russia, but are also prioritizing their own interests and resisting Western pressure to sever economic or military ties.
In a research note last week, Moody’s said that the external environment will remain challenging for China, as the U.S. and other high-income countries reposition their technology investment and trade policies in light of growing geopolitical and security considerations.

Roche said Beijing is well aware that the U.S. will look to curtail its global influence by growing the “technology gap,” which he expects to widen from five to 10 years at present to around 20 years. To do so, he anticipates Washington could use its might to monopolize trade with countries innovating in areas of technology that are capable of serving both missiles and cellphones — such as the semiconductor industry in the Netherlands.
“Additional measures by Western countries to restrict investment flows to China, block access to technology, restrict market access for China’s firms, and promote diversification policies, could continue to weigh on foreign investors’ risk perception regarding doing business in China,” Moody’s said in last week’s note. “These measures also have the potential to weaken China’s economic outlook.”

Mining stocks reacted with trepidation on Monday to the Chinese Communist Party’s cautious growth outlook, given the importance of Chinese operations in the sector. Roche argued that “what will disappoint in China is the way that growth is achieved,” as infrastructure using Australian or U.S. mineral imports will no longer be able to power the economy out of crises.
“I think the way that China has to go now is to mobilize its own masses to spend their money, trust the government, and not accumulate excess savings, so it will all happen in travel and in shops and in restaurants, and much less in the heavy duty stuff, which we all want to see as the motor of the world economy, because it is the motor of the Chinese economy,” he said. “I think that model is dead as a duck.”
Centralization and defense over economics
While Beijing’s ambitious growth project has seemingly taken a backseat for now, leaders at the NPC focused heavily on national security and on the domestic political centralization of power.
The government expects the defense budget to grow by 7.2% in 2023, up from 7.1% in 2022, but strategists at BCA Research suggested in a note Tuesday that the official figure is often an underestimation.
“The Communist Party is also continuing the process of subordinating state institutions to its will, which reduces the autonomy of technocrats and civil service in favor of political leadership,” the Canadian investment research firm said.
“These actions will reduce the already limited degree of checks and balances that existed between the party and the state, while signaling to the outside world that China continues to pursue centralization and national security over de-centralization and global economic integration.”
Negative reactions and further investment restrictions are therefore likely, at least from the U.S., BCA Research strategists concluded.

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Chinese equities fell on Tuesday after disappointing trade data added to investors’ concerns that the country’s post-zero Covid recovery might prove less explosive than previously expected.China’s CSI 300 fell 1.4 per cent and Hong Kong’s Hang Seng index lost 0.4 per cent after imports in January and February declined 10.2 per cent compared with the same period a year earlier. Exports fared better, falling just 6.8 per cent. Analysts had expected declines of 5.5 per cent and 9.4 per cent for imports and exports, respectively.Investors in Europe looked ahead to testimony from US Federal Reserve chair Jay Powell to Congress later on Tuesday, when he is expected to provide guidance on the future path of interest rates.The Europe’s region-wide Stoxx 600 — up 9.4 per cent year to date — rose 0.1 per cent. Futures tracking Wall Street’s benchmark S&P 500 and those tracking the tech-heavy Nasdaq 100 added 0.2 per cent and 0.3 per cent ahead of the New York open. Tuesday’s Chinese trade figures came after outgoing premier Li Keqiang earlier this week told the annual National People’s Congress that the aim for economic expansion for 2023 was “around 5 per cent” — the country’s lowest growth target for more than three decades.Beijing’s decision to drop contentious zero-Covid policies late last year triggered a “reopening” rally in Chinese equities that has only recently fizzled out. The CSI 300 rose almost a fifth from November to the start of February but has declined 3.5 per cent since then. All sectors of the index apart from energy were in negative territory on Tuesday, with technology and healthcare stocks posting the sharpest declines. “Either reopening has yet to provide much support to import demand, perhaps because many consumer-facing services are not import intensive, or any boost has been offset by a further drop in imports for processing and re-export,” said Julian Evans-Pritchard, senior China economist at Capital Economics. Imports are expected to pick up later in the year, Evans-Pritchard added, but the better than forecast export figures “may drop back again before long as the one-off boost from easing virus disruptions fades” and foreign demand cools.Chinese and other emerging market stocks are nonetheless tipped by many investors to outperform those in the US this year as high interest rates and stubborn inflation weigh on the world’s biggest economy. A flurry of strong economic data releases since the start of February have forced investors to up their expectations for where US rates might peak, and how long they might stay at elevated levels.US government debt strengthened across the board, with the 10-year Treasury yield falling 0.03 percentage points to 3.94 per cent, down from a three-month high above 4 per cent last week. The dollar was steady against a basket of six other major currencies. More

The writer is chief market strategist for Europe, Middle East and Africa at JPMorgan Asset ManagementA slew of economic data has recently surprised to the upside. According to the purchasing managers’ index for the eurozone, the bloc’s economy is growing again. The US had a bumper jobs and retail spending report for January. Investors are now wondering whether the recession they had come to accept as inevitable is likely after all.The causes of the potential recession differed around the world. In the US and UK, central banks had openly stated that a recession would be necessary to drive away inflation. In the eurozone, the risk centred on gas shortages and energy rationing. And China looked set for a long and arduous journey out of Covid. Fast forward a few months and the picture has changed. China has reopened rapidly and, it seems, successfully. It is now experiencing the boom of pent-up consumer demand that other major economies experienced early last year. With little sign of inflationary pressures in China, the authorities can let the recovery run, and they are likely to announce additional stimulus.The landscape has also changed dramatically in continental Europe. Europe came into the winter with its gas storage tanks almost full, having replaced Russian gas with American liquefied natural gas. Since then, the drawdown through the peak winter months has been limited, thanks to a combination of consumers and businesses being a bit more careful with their energy needs and a remarkably mild winter. As a result, the energy crisis that we had feared has not materialised. The storage tanks are still 63 per cent full, which compares with only 30 per cent this time last year. This strong position means that even next winter is looking increasingly secure. The price of wholesale gas has tumbled and, as a result, businesses and consumers are feeling more upbeat — consumer confidence rose to -19 in February, its highest level in a year. What about the US and UK? Here, the question should be reframed from “is a recession still likely?” to “is a recession still necessary?” The answer to this question relies on the trajectory of inflation. If there are sufficient signs that the tightening delivered to date is slowing inflationary pressures, the central banks could pause or even ease policy to try to secure a soft landing.There is some, albeit tentative, evidence that inflationary pressures are easing in the US. Inflation in housing and rental costs could soon start to turn, according to some of the data provided by property renting companies. Despite a strong jobs report and near-record low unemployment, there is some evidence that wage pressures have also peaked.

Earlier in February, the markets got a little over excited about the potential return of “Goldilocks” — the “just right” conditions of robust growth and low inflation. Bond and stock prices rallied.Since then, the US consumer price index report has provided a reality check. Monthly core inflation ticked back up to 0.4 per cent, which corresponds to an annualised rate of nearly 5 per cent — hardly consistent with a 2 per cent inflation target. In addition, the country is feeling some of the inflationary backwash of China’s reopening, as gasoline prices served to raise headline inflation again. In the UK, there is unfortunately less convincing evidence that inflationary pressures have peaked. Wage growth continues to push north. Business confidence has been boosted by the fall in gas prices but UK policymakers still have work to do, as this may add to underlying inflationary pressures. The Bank of England will probably have to raise interest rates further to keep activity weak until inflation subsides.Overall, the tail risks of a deep global recession have been reduced. China has reopened, Europe is not running out of energy and the US is not stuck in a 1970s inflation spiral.But a period of very slow activity, if not a moderate recession, still seems likely and indeed necessary, in my view. Market talk of “no landing” — that the global economy can power on at its current growth rate — misses the fundamental point that demand is beyond available supply, which is why there is still too much inflation. We should work on the basis that earnings will contract by around 10 per cent in the developed world as slowing demand reduces operating leverage — the levels of returns on fixed assets — and profit margins are eroded as companies lose their pricing power.If demand continues to reaccelerate, this will most likely be met with higher interest rates. For now, both stock and bond investors should expect good economic news to be bad news for markets.  More

Jay Powell is set for a high-stakes appearance before Congress on Tuesday, as the Federal Reserve weighs how aggressively to keep raising interest rates in the face of stubbornly high inflation.Powell’s testimony before the Senate Banking Committee will be the Fed chair’s first public remarks since troubling inflation data releases showed the central bank is still struggling to cool the US economy despite its year-long campaign of monetary tightening.The Fed’s main interest rate is at a target range between 4.5 and 4.75 per cent, compared to near-zero at this time last year. But Fed officials have increasingly signalled they will have to lift it more — and keep it higher for longer — to ensure a more rapid decline in inflation towards the central bank’s 2 per cent target.Lawmakers and investors will be looking for clues from Powell as to whether he favours another one-notch 25 basis point rate increase at the next Federal Open Market Committee meeting on March 21-22 or if he might consider a more hefty 50 basis point increase.They will also be looking for signals of a shift in the Fed’s expectations of how high it will have to raise rates overall this cycle. In December, Fed officials projected interest rates will reach a peak of 5.1 per cent this year.But Powell may want to withhold judgment on both fronts because there is still one important monthly jobs data report due on Friday, and another month of inflation data next week, before the FOMC decision. “Powell will stick to hawkish themes, but will he be more hawkish than what’s already priced into rates?” Tim Duy, chief US economist at SGH Macro Advisors, wrote in a note on Monday.

Krishna Guha and Peter Williams of Evercore ISI said: “We think the Fed chair will open the door to a calibrated upward move in the estimated peak interest rate in March if the next batch of data confirms the strength from January, but will not turn max hawkish or fuel speculation of a 50bp move.”Politically, Powell is likely to face renewed pressure from Republicans to be aggressive and not fall behind the curve in tackling inflation. But Democrats have been growing increasingly anxious that the Fed will go too far in tightening monetary policy, triggering a recession that could undermine many of the labour market gains achieved during the recovery out of the pandemic.Meanwhile, Powell is also expected to face questions on banking regulation, with Democrats pressing the Fed to tighten capital standards for the largest institutions, and Republicans pleading for a looser treatment. Michael Barr, the Fed’s vice-chair for supervision, is leading a review of capital rules. More

Commercial seafarers might be the workforce that people rely on the most but think about the least. The vast majority of goods traded around the world are transported on ships. Capitalism wouldn’t work without the almost 2mn people who work on them. But it seems to take a lot for them to get noticed. When the Covid-19 pandemic hit, more than 300,000 commercial seafarers were left stranded on their ships well past the expiry of their contracts, because virus control measures and travel restrictions prevented crews from being rotated. Part of the problem then was the length of time it took many countries to classify them as “key workers” in spite of the fact that their work was, quite clearly, key.They have been caught up in the war in Ukraine too: according to the International Chamber of Shipping, 331 seafarers have been stuck on 62 ships trapped in Ukrainian ports since the war began a year ago. The ICS, together with 30 other organisations, wrote last month to UN secretary-general António Guterres to try to publicise their plight and push for a negotiated solution that could help them leave safely.But it doesn’t always take a global crisis for seafarers to end up adrift. Sometimes ship owners just abandon them, maybe after they have underestimated the cost of running a voyage, or when they realise a ship needs investment and it would be less costly just to walk away. Under international law, a seafarer is deemed to have been abandoned if the ship owner fails to cover the cost of their repatriation, has left them without maintenance and support or has otherwise cut ties with them, including by failing to pay their wages for at least two months.“There they are all of a sudden without anyone paying their wages and caring for them. In the worst cases, they are on board a ship that no longer has energy supply, can’t run generators — if it’s cold they can’t heat themselves, if it’s hot they can’t cool themselves, they might have no water, no food,” says Steen Lund, chief executive of ship vetting specialist RightShip, which tracks data on abandonments.It’s not always possible for seafarers to leave an abandoned ship. They might not have a visa to enter a country, or the local authorities might say they have to stay on board to keep the ship safe. Even if they can leave, many don’t want to walk away empty-handed because they are owed money their families have been counting on. In one recent case, a Syrian seafarer called Mohammed Aisha was trapped on an abandoned cargo ship in Egypt for four years after a local court declared him the ship’s legal guardian. He had to swim to shore every few days to charge his phone.Abandonments are relatively rare but they seem to be on the rise. Between 2006 and 2016, there were typically between 10 and 25 official abandonments reported each year, according to the International Labour Organization’s database, with the exception of the recession year of 2009. But more recently, the figures have climbed sharply. Last year, 118 cases were reported involving 1,841 seafarers, according to the International Transport Workers’ Federation, which reports most of these to the ILO. Seafarers from the Philippines, India and Pakistan were the most affected, while the abandonments happened in the waters of 46 countries.There has been some progress made in helping seafarers more effectively when they are abandoned. A new international rule in 2017 required ships to have insurance against abandonment, which pays out to cover the cost of seafarers’ wages and repatriation. The catch is it only applies to vessels flagged to countries that have ratified the Maritime Labour Convention, and even then compliance hasn’t been perfect. Still, the ITF says it has made a difference: about 60 per cent of last year’s cases involving insurance have been resolved, compared with about 40 per cent of cases without. Indeed, it is possible the rise in reported abandonments is partly due to more seafarers knowing it is worth reporting. RightShip is also trying to use data to track ship owners that abandon seafarers, so decent companies at the top of the supply chain know which ones to avoid. But outside the industry, who knows it goes on at all? “Shipping is just so unlike any other industry in [terms of] what’s tolerated,” says Stephen Cotton, the ITF’s general secretary. “If you were trapped at work for days or weeks chained to a desk, there would be outrage, so why do we let it go on in vessels?”[email protected] More

Greece is on the cusp of regaining its investment-grade credit rating after 12 years in the junk-bond wilderness, its central bank governor Yannis Stournaras has said as he urged the country’s next government to maintain fiscal prudence. Stournaras told the Financial Times that he was “confident” that credit rating agencies would upgrade Greek bonds within months, should lawmakers signal their intent to maintain reforms and take advantage of a “window of opportunity” to significantly lower the country’s debt burden. “We think that 2023 is the year we’ll get the investment grade,” Stournaras said.His comments come as the country gears up for spring elections, with the incumbent centre-right New Democracy party leading in the polls. The party has signalled that it will continue to carefully manage the public finances. Stournaras said the most likely timing of the upgrade was “immediately after the election”, but that it could even come before the vote takes place. Greece lost its investment-grade status in January 2011 after its economic crisis threatened to break the eurozone apart. Its ratings fell as low as CCC-, before recovering to BB+ — one notch below investment grade — as the country’s economic recovery gathered momentum. The country managed to shave more than 24 percentage points off its debt-to-GDP ratio last year alone, with its economy expanding by just over 5 per cent over the course of 2022. “A few years ago, few people expected Greece to remain in the eurozone. Now, not only does it remain, but it performs better than the eurozone average,” the governor said. Stournaras, who has headed the central bank since 2014, warned that this “benign [economic] cycle” must not be squandered and called on the government to make some desperately needed investments in the country’s battered infrastructure following a railway crash that has claimed the lives of at least 57 people. “Greece has managed to correct macroeconomic imbalances and improve price and wage competitiveness, but structural competitiveness remains low compared to other eurozone members,” he said. “The country’s infrastructure and the modernisation of the public sector remain an issue.”

University students at a rally walk to the headquarters of Hellenic Train following Greece’s worst recorded rail accident © Aristidis Vafeiadakis/ZUMA Press/dpa

Despite the gains of recent years, Greece still holds the highest debt load in the eurozone at 170 per cent of its output. Under the terms of its bailout, official creditors took on a large chunk of Greece’s debt, while charging relatively low interest rates for the government to service it up until 2032. “We have a window of opportunity that should not be wasted,” Stournaras said. “We need to bring down the debt-to-GDP ratio to such a level that nine years from now, so the interest payments, which are now under grace period, will not create a new debt problem.” Growth would also be lower this year, with higher interest rates expected to weigh on demand. “A sustainable fiscal effort will be needed,” the former finance minister said, adding that it would not be easy for the government to go from a small primary deficit to a position of fiscal surplus by 2024. High inflation would also dampen the economic outlook. Core price pressures — which exclude changes in food and energy costs, and are seen as a better gauge of underlying inflation — hit a fresh regional high of 5.6 per cent. However, Stournaras, who sits on the European Central Bank’s governing council, flagged that headline inflation readings were much “better”, or lower, than rate-setters had anticipated in December due to a sharp fall in energy prices.

He would not pre-commit to specific further rate rises in an environment where headline inflation was declining. “That could lead to an increase in market confusion rather than limit it.”His comments clash with the increasingly hawkish tone coming from many of his fellow ECB rate-setters. Its president, Christine Lagarde, has said the central bank is “very, very likely” to raise its deposit rate from 2.5 per cent to 3 per cent at its meeting on March 16, warning “inflation is a monster that we need to knock on the head”. Additional reporting by Martin Arnold in Frankfurt More